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The short answer is no. The market remains disrupted and replete with uncertainty. Investors are cautious with funds as they look to de-risk during this period. However, the market will ultimately settle, which will beget a fresh wave of investment and IPOs. Indicators are starting to point in the right direction. Below, we look at how equity markets are impacting orthopedic companies.
A Volatile and Uncertain Environment
While inflation moderated toward the end of 2023, the overall environment remains under pressure. Prices are still significantly higher than they were in 2019. Dwindling savings and negative real incomes burden consumers and exacerbate inflationary pressures and concerns. Uncertainty permeates the market.
That uncertainty brought a dramatic inverse reaction to third-quarter earnings for many top-performing orthopedic companies. Players like ATEC and Paragon 28 that met or beat topline estimates still saw flat or declining stock prices. Those who missed estimates, like OrthoPediatrics and Treace Medical, got punished with significant price declines.
“Even those companies that are beating are still getting caught up in the broader small-cap sell-off over concerns on inflationary pressures, procedure volumes and the impact of the GLP-1s. How they impact movement-related issues like foot and ankle and spine is to be determined,” said Charles Hamilton, Managing Director of Piper Sandler.
Investments: Flight to Quality and Profitability
Total investment dollars are roughly on par with pre-COVID amounts, but the pace of investment has slowed. Later-stage companies receive larger checks as investors move toward commercial growth, big-ticket items like pivotal clinical data and profitability.
We estimate that 27 investments worth at least $637 million went to orthopedic companies in 2023. Like orthopedic M&A, funding activity decelerated in the wake of the pandemic. However, the average funding amount in 2023 nearly doubled compared to the average between 2016 and 2022.
In 2023, companies raising funds for enabling technologies received the most investment in activity (nine announcements) and dollar amount ($242 million). Going back to 2016, however, spine maintains a commanding lead with 28% of all announcements, accounting for 31% of all investment dollars.
IPO Window Remains Closed
There’s not much to talk about in terms of IPOs. The window is completely shut. Interest rates will likely remain higher for a longer period, but the market should eventually settle into that new dynamic. That new equilibrium should spur new investment and potentially reopen the path for a fresh batch of companies to go public.
Paragon 28 and Treace Medical were among the last orthopedic companies to slip through the previous IPO window in 2021 when unprecedented market conditions created “off the charts” IPO activity.
The next wave of players are engaged in preparations, but will likely have to wait until the second half of 2025 or early 2026. “We’re in a cycle,” said Mr. Hamilton. “We’ve been here before and will probably be here again, but hopefully after some good times.”
The short answer is no. The market remains disrupted and replete with uncertainty. Investors are cautious with funds as they look to de-risk during this period. However, the market will ultimately settle, which will beget a fresh wave of investment and IPOs. Indicators are starting to point in the right direction. Below, we look at how equity...
The short answer is no. The market remains disrupted and replete with uncertainty. Investors are cautious with funds as they look to de-risk during this period. However, the market will ultimately settle, which will beget a fresh wave of investment and IPOs. Indicators are starting to point in the right direction. Below, we look at how equity markets are impacting orthopedic companies.
A Volatile and Uncertain Environment
While inflation moderated toward the end of 2023, the overall environment remains under pressure. Prices are still significantly higher than they were in 2019. Dwindling savings and negative real incomes burden consumers and exacerbate inflationary pressures and concerns. Uncertainty permeates the market.
That uncertainty brought a dramatic inverse reaction to third-quarter earnings for many top-performing orthopedic companies. Players like ATEC and Paragon 28 that met or beat topline estimates still saw flat or declining stock prices. Those who missed estimates, like OrthoPediatrics and Treace Medical, got punished with significant price declines.
“Even those companies that are beating are still getting caught up in the broader small-cap sell-off over concerns on inflationary pressures, procedure volumes and the impact of the GLP-1s. How they impact movement-related issues like foot and ankle and spine is to be determined,” said Charles Hamilton, Managing Director of Piper Sandler.
Investments: Flight to Quality and Profitability
Total investment dollars are roughly on par with pre-COVID amounts, but the pace of investment has slowed. Later-stage companies receive larger checks as investors move toward commercial growth, big-ticket items like pivotal clinical data and profitability.
We estimate that 27 investments worth at least $637 million went to orthopedic companies in 2023. Like orthopedic M&A, funding activity decelerated in the wake of the pandemic. However, the average funding amount in 2023 nearly doubled compared to the average between 2016 and 2022.
In 2023, companies raising funds for enabling technologies received the most investment in activity (nine announcements) and dollar amount ($242 million). Going back to 2016, however, spine maintains a commanding lead with 28% of all announcements, accounting for 31% of all investment dollars.
IPO Window Remains Closed
There’s not much to talk about in terms of IPOs. The window is completely shut. Interest rates will likely remain higher for a longer period, but the market should eventually settle into that new dynamic. That new equilibrium should spur new investment and potentially reopen the path for a fresh batch of companies to go public.
Paragon 28 and Treace Medical were among the last orthopedic companies to slip through the previous IPO window in 2021 when unprecedented market conditions created “off the charts” IPO activity.
The next wave of players are engaged in preparations, but will likely have to wait until the second half of 2025 or early 2026. “We’re in a cycle,” said Mr. Hamilton. “We’ve been here before and will probably be here again, but hopefully after some good times.”
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ME
Mike Evers is a Senior Market Analyst and writer with over 15 years of experience in the medical industry, spanning cardiac rhythm management, ER coding and billing, and orthopedics. He joined ORTHOWORLD in 2018, where he provides market analysis and editorial coverage.
